What is a recap (recapitalisation) and why do founders propose them?

Full Explanation

In a recap, new investors buy shares from the existing cap table without injecting new capital into the company (or with minimal injection). Example: company is worth £100M; founders own £30M (30%), investors own £70M. New investor acquires £15M of founder equity at fair market value, and founders receive cash whilst remaining in the business. Recaps are attractive to founders who want partial liquidity: instead of a full exit, they stay involved but de-risk personal net worth. Recaps are also attractive to late-stage investors (PE firms, growth equity) who want to refresh the cap table and bring fresh capital. From the company perspective, recaps don't add new capital (which is a downside) but do simplify governance by retiring old investor seats. Some recaps include the company issuing new shares, meaning new investor capital flows into the business — but this is usually secondary. Recaps became fashionable post-2021 as venture companies stayed private longer, and founders wanted partial exits. For cap table management, recaps can be complex: they trigger new preferences, new board seats, and sometimes hostile ownership dynamics if the new investor undervalues existing shareholders.

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